Starbucks

Within the coffee industry Starbucks Corporations has grown from a small shop to a leading coffee distributor, proving to have financial strength and determination to continue growth. With the weakening economy the continued success of Starbucks

The “Coffee Wars – The Big Three: Starbucks, McDonald’s and Dunkin’ Donuts” article focuses on the company analysis of the Starbucks brand and how its main competitors, McDonald’s and Dunkin Donuts, has affected their brand and driven competition higher. Even though there are many companies trying to enter the specialty coffee market, these three companies own the majority of the market share. With Starbucks’ top quality and above average prices they hold a different market than the fast coffee/food market of Dunkin’ Donuts and Starbucks; yet the competitive moves Dunkin’ Donuts has made over the years in order to compete with Starbucks and surpass McDonald’s has driven competition up between all three companies. The competition has stiffened ever more in the past ten years due to the changing economy. This led to “the big three” to come up with different techniques to gain competitive advantage over the other. Although the competition between these companies is to gain most of the market share, consumers are still loyal to a certain brand; this makes it difficult to gain each other’s clientele. McDonald’s continues to appeal to customers who want value and speed, Dunkin’ Donuts focuses on the middle-class, while Starbucks a customer who desires a higher quality product along with being recognized for using the brand.

Since Starbucks entered the coffee retail business, the company has made many trade-off business decisions. The first major trade-off was made when Howard Schultz wanted to acquire present day Starbucks from three entrepreneurs Baldwin, Siegel and Bowker. Therefore, Schultz prior to the acquisition made the trade-off to open his own coffee bar in 1986 instead of staying at Starbucks as the manager of retail sales and marketing. A bold feat, Schultz was able to replicate success and was offered to buy Starbucks for $4 million. At the time of the acquisition, many investors, including the former Starbucks owners, would not expect that the American consumer would pay a premium for coffee products. Schultz, after calculating the opportunity cost, was convinced that Starbucks would become a large coffee chain not only in the United States but internationally too. Reflecting this approach, Schultz’s trade-off worked. Starbucks, according to our book has revenue exceeding $13 billion and nearly 200,000 employees. The company has also expanded to 40 countries with 17,000 stores (Hill et al., 2015).

quality of the products connected with a fair price attracts many coffee lovers. Starbucks also

The industry’s saturation is moderately high with a monopolistic competition structure. For new entrants, the initial investment is not significant as they can lease stores, equipment etc. at a moderate level of investment. At a localized level, small coffee shops can compete with the likes of Starbucks and Dunkin Brands because there are no switching costs for the consumers. Even though it’s a competitive industry, the possibility of new entrants to be successful in the industry is moderate. But this relatively easy entry into the market is usually countered by large incumbent brands identities like Starbucks who have achieved economies of scale by lowering cost, improved efficiency with a huge market share. There is a moderately high barrier for the new entrants as they differentiate themselves from Starbuck’s product quality, its prime real estate locations, and its store ecosystem ‘experience’. The incumbent firms like Starbucks have a larger scale and scope, yielding them a learning curve advantage and favourable access to raw material with the relationship they build with their suppliers. The expected retaliation from well-established companies for brand equity, resources, prime real estate locations and price competition are moderately high, which creates a moderate barrier to

Starbucks is known for their Frappuccino’s; unfortunately they are on a downward spiral in sales due to competitors such as McDonalds. In 2008 Starbucks admits to its losses due to their competitors. “Company executives now freely admit that such thinking is largely to blame for the woes that led to Tuesday’s announcement that Starbucks will close 600 U.S. stores and eliminate thousands of jobs. The coffee giant’s missteps have come at a spectacularly bad time, hitting as the economic slump deepens and consumers are seeing their discretionary spending eaten up by rising gas prices and grocery bills (Linn).”

When Howard Schultz launched Starbucks, its main targets were the competitors and the customers. Schultz’s brand aimed at gaining dominance in the coffee industry in addition creating a Italian coffee shop feel in the United States (Buchanan & Simmons, 2009). The strategy of Starbucks was based on new products, listening to customers wants and ensure future expansion (Buchanan & Simmons, 2009). In creating convenience for customers, Starbucks created stores almost on top of eachother. They hinged on the idea that, they did not want to lose out on a sale if a line was too long. This action, of placing stores in heavy populated areas, basing need on projected growth of an area caused some decline in sales during economic trouble with the economy. The 2007 recession, failure of subprime mortgages, increased competition from McDonald 's McCafe brand, and Dunkin Doughnuts all led to a decline in sales for Starbucks in the fourth quarter of 2007 (Buchanan & Simmons, 2009). To attempt to regain market share and recover after the

For more than three decades since Starbucks started its operations, the company was considered as a leading coffee chain operator. However, in 2008, the company faced a significant financial downturn that almost cost it its position in the marketplace. Through strategic planning and adopting a differentiation strategy, Starbucks, under the CEO Howard Shultz, recovered from the financial decline to regain a competitive advantage over other big companies like McDonald's and Panera Bread. This paper will discuss the business strategy and management for Starbucks Company and emphasize the importance of business strategy. It will cover the strategic basics of Starbucks, its financial downfall, an analysis of its profitability and a comparison with its key competitors as well as its technological threats and opportunities.

Two CEOs followed Schultz’s tenure and Jim Donald, the second one, put increasing the number of stores and store efficiencies as his strategy above customer service driving the business. “Complaints surfaced that Starbucks felt more like a fast-food restaurant than a coffeehouse.” (New York Times ~ Business Day, 2012) This pursuit, along with the Great Recession, created havoc in Starbucks finances, driving stock price “from a high of $40 (5/1/2006) to $8 (11/17/2008).” (Living Economics) At that point, the Board ousted Jim Donald and asked Schultz to come back as CEO and “lead a major restructuring and revitalization initiative.” (Thompson & Shah, 2010)

Starbucks strategies have successfully made them one of the biggest names in the coffee market globally. Starbucks has been able to survive the high competitive market and to differentiate themselves from other coffee shops by producing high quality coffee. Also, Starbucks successfully create a huge numbers of loyal customers worldwide by providing great services and high quality products. Starbucks was able to survive 2008 financial crisis successfully. In 2008, Starbucks net income was -53% that means Starbucks was losing so much many yet, 2009 Starbucks was able to not only stop their losses but also to gain a profit of 24%. However, Starbucks should be worry from the possibility of another financial

Also Starbucks currently has Number 1 share in coffeehouse market, where their brand valuing them at $4 billion. This tells that Starbucks has a strong brand reputation which is associated with quality of coffee they provide and excellent customer service. Its brand is the most valuable strength they have over the other competitors in market. Their financial status is also a strength they possess. Starbucks profitability has consistently been on the rise for the past 4 years and is now 14%. The company also outmatches its nearest competitors such as Peet’s Coffee and Tea, with 24.5% ROI. Starbucks also possess largest coffeehouse chain internationally. Starbucks manages around 20,000 coffeehouses in over 60 countries, making it the largest coffeehouse chain in the world. Starbucks employee benefits and care are one of the best in the world. The company offers its employees wide range of benefits regardless of their status, and has higher wage than most of its competitors.

In general the coffeehouse industry in the United States was experiencing an increase in coffee consumption per capita due to the “Starbucks effect”. At this time Starbucks was operating approximately 20,000 stores in the United States and was living a fast expansion strategy worldwide.

When Howard Schultz began to notice a decline in the Starbucks brand he built from a single coffee house into a multinational chain of over 15,000 locations employing over 172,000 people, he decided to begin 2008 with new direction. He reassumed the role as CEO and proposed a set of new initiatives to reenergize the company as a whole. These initiatives started at the front lines of Starbucks by changing some of the current machinery used to create espresso and coffee. Next he launched new roasted coffee blends that were set to revolutionize overall taste and perception of coffee. Additionally, due to perceived loss of customers, he introduced a revamped rewards program as well as an online forum to allow anyone from

Nevertheless, Starbucks’ stock price has had its downfalls in the past five years. Around July 29th, 2012, the company’s stock had a significant dip. According to CNN Money, although the company did significantly well in the months prior, it failed to match its predictions due to global economic conditions, more specifically, its increasing efforts to expand in Europe. Therefore, many investors began to mistrust the company due to the small margin of error in its prediction. Furthermore, in 2007, Starbucks Corp. made yet another mistake. After a rapid expansion and significant growth during the previous year, the company’s stock fell by 42% that year. The underlying reason being that in opening new stores, Starbucks lost its identity. It became more of a standard grab-and-go coffee shop than a unique coffee experience. Therefore, many customers felt unsatisfied and the company ultimately had a decrease in sales. However, it is important to note that the dip in stock price was generated by more than just the

The company has a focus on innovation through an emphasis of introducing new products and coffees such as “instant coffee” Via which generated a large sales growth of over 200 million. These new products consistently help Starbucks evolve as a